Viscount Systems Inc.: Exhibit 4.1 - Filed by newsfilecorp.com






B Note 

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“1933 ACT”), OR THE SECURITIES LAWS OF ANY STATE. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH 1933 ACT AND/OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO
RULE 144 OF SUCH 1933 ACT. THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION
OF THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES. 

VISCOUNT SYSTEMS, INC. 

SENIOR SECURED CONVERTIBLE DEMAND PROMISSORY B NOTE

	B Note No:  ____________	Original Issuance Date: November 24, 2015  
	  	     Original Principal
      Amount: $ ____________


Viscount Systems, Inc. a Nevada
corporation (and together with each and every of its current and future
Subsidiaries (as defined below), collectively, the “Company”), hereby
promises to pay to _________________or registered assigns (the “Holder”)
_______________(the “Original Principal Amount”) (as reduced pursuant to
the terms hereof pursuant to payment, conversion or otherwise, the
“Principal”) and to pay interest (“Interest”) on any outstanding
Principal at the applicable Interest Rate from the date set forth above as the
Original Issuance Date (the “Issuance Date”) through and including the
date all Principal, all accrued but unpaid Interest thereon and all other
amounts due hereunder is received by the Holder in immediately available funds
by wire transfer pursuant to wire transfer instructions provided to the Company
by the Holder. This Senior Secured Convertible Promissory Demand B Note
(including all Senior Secured Convertible Demand B Notes issued in exchange,
transfer or replacement hereof, and/or as Interest pursuant to Section 1 below),
is hereinafter referred to as this “Note,” and together with all other
Notes, collectively, the “Notes”. All Principal, together with all
accrued but unpaid Interest, and all other amounts due hereunder shall be due
and payable on the Demand Payment Date to the Holder upon delivery by the Holder
to the Company of written demand in cash by wire transfer pursuant to wiring
instructions provided to the Company by the Holder.

This Note is one of a series of
Senior Secured Convertible Demand Promissory B Notes issued and sold by the
Company in an original aggregate principal amount equal to no less than $330,000
(but not to exceed $660,000 without the consent of the Company’s Board of
Directors). The $330,000 original aggregate principal amount of the Notes
($660,000 if all Notes are sold) includes ten (10%) percent original issue
discount $30,000 (or $60,000 if all Notes are sold). For example and for clarity
purposes only, if the Company sold to 3 purchasers $330,000 aggregate principal
amount of Notes with each of the 3 such purchasers purchasing an equal amount of
such Notes, the aggregate purchase price paid by such three (3) persons would be
$300,000 (or $100,000 per person) with the $10,000 difference between the
$110,000 aggregate principal amount of each Note and the $100,000 purchase price
paid for each Note by a purchaser constituting 10% original issue discount).

The following is a statement of
the rights of the Holder of this Note and the conditions to which this Note is
subject, and to which the Holder, by the acceptance of this Note, agrees: 




1.                  Interest; Certain
Definitions; Transaction Documents. Interest on this Note shall commence
accruing on the Issuance Date at the Interest Rate (as defined below) and shall
continue accruing interest until all amounts under this Note and the other
Transaction Documents owed to the Holder are received in full in cash by the
Holder), shall accrue daily on a compounding basis, be payable quarterly in
arrears on each of March 31, June 30, September 30 and December 31 or if any
such date falls on a Holiday (as defined below), the next day that is not a
Holiday (each an “Interest Payment Date”). Interest shall be payable on
each Interest Payment Date to the record Holder of this Note at the option of
the Company in (i) cash and/or (ii) Notes with the aggregate principal amount of
any Note issued as Interest in lieu of cash equal to the amount of Interest due
on such Interest Payment Date, with the first Interest Payment Date being
December 31. For purposes of this Note, the term “Interest Rate” means
eight (8%) percent for each 30 days (pro-rata for any period of less than 30
days), (which Interest Rate shall increase to the lesser of (x) 21% per annum,
and (y) the highest amount permitted by applicable law), for each 30 days
(pro-rata for any period of less than 30 days) commencing on the date of an
Event of Default and continuing through and including the date all amounts
hereunder are paid in full in immediately available funds by wire transfer
pursuant to wire transfer instructions provided by the Holder to the Company.
For purposes of this Note, the term “Holiday” means any day other than a
Business Day; “Business Day” means any day other than Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law to remain closed; “Demand Payment Date” means the next
Business Day following the date the Holder sends to the Company written notice
that the Holder demands that all Principal, accrued but unpaid Interest and all
other amounts owed to the Holder under this Note and the other Transaction
Documents is due and payable; and “Trading Market” means any of the
following markets or exchanges on which the Common Stock (or any other common
stock of any other Person that references the Trading Market for its common
stock) is listed or quoted for trading on the date in question: the OTC Bulletin
Board, The NASDAQ Global Market, The NASDAQ Global Select Market, The NASDAQ
Capital Market, the New York Stock Exchange, NYSE Arca, the NYSE MKT, or the
OTCQX Marketplace, the OTCQB Marketplace, the OTCPink Marketplace or any other
tier operated by OTC Markets Group Inc. (or any successor to any of the
foregoing). “Transaction Documents” means all Notes issued to the Holder
and the other holders of Notes, the B Certificate, the B Shares, the TA Letter,
the Security and Pledge Agreement, the IP Security Agreement, the Subsidiary
Guaranty, the A Share Amendment and any and all instruments, certificates and/or
other documents used to perfect all of the Holders security interests in the
Collateral (as defined in the Pledge Security Agreement and the IP Security
Agreement) including, but not limited to any UCC-1 financing statements, all of
which, and related documents necessary and/or advisable to effectuate the
transaction contemplated in the above documents and all supplements, exhibits,
amendments, schedules and/or annexes to any such documents. The term “TA
Letter” means the irrevocable instructions to the Company’s transfer agent
in the form annexed hereto as Exhibit 1; the term “IP Security
Agreement” means the Intellectual Property Security Agreement annexed hereto
as Exhibit 2; the term “Security and Pledge Agreement” means the
Security and Pledge Agreement annexed hereto as Exhibit 3; the term
“Subsidiary Guaranty” means the Subsidiary Guaranty Agreement annexed
hereto as Exhibit 4; the Stock Power of Attorney (the “SPA”) and
the stock certificate (the “Certificate”) for the 120 Class A Voting
Common Shares of Viscount Communications and Control Systems, Inc., a British
Columbia corporation and wholly-owned Subsidiary of the Company in the name of
the Company (FKA, OMV 4 Corp.) are all annexed here to as Exhibit 5; the
term “A Share Amendment” means the amendment to the Certificate of
Designation for the Company’s Series A Preferred Stock (as amended), annexed
hereto as Exhibit 6; and the term “B Certificate” means the
Company’s Certificate of Designation Establishing the Designations, Preferences
and Rights of its Series B Preferred Stock, a copy of which the Company
previously filed with the Secretary of State of Nevada, a copy of which,
together with the stock certificates representing the Company’s Series B
Preferred Stock (the “B Stock”) issued to certain holders of Notes and
Other Notes (as defined below) and the proof of filing of such B Certificate
with the Nevada Secretary of State are annexed hereto as Exhibit 7.

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2.                  Conversion. 

2.1                  Optional Conversion.
All Principal, accrued, but unpaid Interest and all other amounts due herein
and/or pursuant to the Transaction Documents may be converted at the sole option
of the Holder, at any time and from time to time into such number of shares
(“Conversion Shares”) of common stock, par value $0.001 per share (the
“Common Stock”) as shall equal the quotient of (i) all Principal, all
accrued but unpaid Interest and any other funds owed to the Holder by the
Company under this Note and/or any other Transaction Document that the Holder
has elected to convert any Conversion Amount (a “Conversion”) into
Conversion Shares (the “Conversion Amount”), divided by (ii) the
Conversion Price. “Trading Day” means a day on which the Common Stock is
eligible for quotation on the OTC Market, or, if the Common Stock is not then
eligible for quotation on the Trading Market then any day that the Common Stock
is traded or eligible for quotation on any other United States commonly
acceptable trading medium or market place where the Common Stock is then traded
or eligible for quotation. “Conversion Price” shall mean the product of
(x) sixty (60%) percent multiplied by (y) the lowest bid price (or lowest sale
price, as the case may be) of a share of Common Stock during the 20 consecutive
Trading Days prior to the date of any Conversion with the last Trading Day being
the Trading Day immediately prior to the Trading Day the Holder informs the
Company in writing by a Conversion Notice (as defined below) that the Holder is
converting all or any part of this Note into shares of Common Stock. 

2.2                  Mechanics of
Conversion. To effectuate a Conversion pursuant to this Section 2, the
Holder shall transmit by hand, facsimile or email (or otherwise deliver), for
receipt on or prior to 11:59 p.m., New York time on such date, a copy of a fully
completed executed notice of conversion in the form attached hereto as
Annex 1 (the “Conversion Notice”) to the Company. The date
of any Conversion shall be deemed the date a Conversion Notice is deemed given
pursuant to Section 13.8 hereof (the “Conversion Date”). If, but only if,
all Principal and accrued but unpaid Interest and all other amounts owed to the
Holder under this Note and the other Transaction Documents is being converted
into Conversion Shares, a Holder shall deliver to the Company this Note, but in
no other event shall this Note be required to be delivered to the Company to
effectuate a Conversion. The calculations and entries set forth on a Conversion
Notice shall control in the absence of manifest or mathematical error. On or
before the third (3rd) Trading Day following the Conversion Date (the
“Share Delivery Date”), the Company shall (x) issue and deliver to the
address as specified in the Conversion Notice, a certificate, registered in the
name of the Holder or its designee, for the number of Conversion Shares to which
the holder shall be entitled, or (y) provided that the Company’s transfer agent
(the “Transfer Agent”) is participating in The Depository Trust Company
(“DTC”) Fast Automated Securities Transfer Program, upon the request of
the Holder, credit such aggregate number of Conversion Shares to which the
Holder shall be entitled to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal Agent Commission system. If a Holder elects
to deliver this Note, and the entire Principal, all accrued but unpaid Interest
and all other amounts owed under this Note and the other Transaction Documents
is not being converted, then the Company shall, as soon as practicable after
receipt of the Note (but in no event later than five (5) Trading Days), cause to
be issued and delivered to the Holder a new Note representing the remaining
amount of Principal on the Note not converted. The person or persons entitled to
receive the Conversion Shares issuable upon a Conversion shall be treated for
all purposes as the record holder or holders of such Conversion Shares on the
date such Conversion Shares are issued. Each Note shall be converted into such
number of Conversion Shares, as provided in this Section 2. 

2.3                  Failure to Deliver
Certificates. If, in the case of any Conversion Notice, the required Common
Stock certificate or certificates are not delivered to or as directed by the
applicable Holder without restrictive legend by the Share Delivery Date, the
Holder shall be entitled to elect by written notice to the Company at any time,
to rescind such conversion, in which event the Company shall promptly return to
the Holder any Note delivered to the Company and the Holder shall promptly
return to the Company any Common Stock certificates issued to such Holder
pursuant to the rescinding Conversion Notice. 

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2.4                  Obligation Absolute; Partial Liquidated
Damages. The Company’s obligations to issue and delivery the Conversion
Shares upon a Conversion in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any setoff, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to such Holder in connection with the
issuance of such Conversion Shares. In the event a Holder shall elect to convert
any Conversion Amount into Conversion Shares, the Company may not refuse
conversion based on any claim that such Holder or anyone associated or
affiliated with such Holder has been engaged in any violation of law, agreement
or for any other reason, unless an injunction from a court, on notice to Holder,
expressly restraining and/or enjoining conversion of all or part of the
Conversion Amount shall have been sought and obtained by the Company, and the
Company posts a cash surety bond for the benefit of such Holder in the amount of
300% of the Principal, all accrued but unpaid Interest thereon and all other
amounts hereunder this Note and the Transaction Documents which is subject to
the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the underlying dispute and the proceeds of which shall
be payable to such Holder to the extend it obtains judgment. In the absence of
such injunction, the Company shall issue Conversion Shares and, if applicable,
cash, by the Share Delivery Date. If the Company fails to deliver to a Holder
such certificate or certificates without restrictive legend, by the Share
Delivery Date applicable to such conversion, or in the event of a dispute, fails
to post the surety bond in accordance with this paragraph, the Company shall pay
to such Holder, in cash, as liquidated damages and not as a penalty, for each
$10,000 of Conversion Amount, $200 per Trading Day commencing the day after the
Share Delivery Date (increasing to $400 per Trading Day on the fifth
(5th) Trading Day after such damages begin to accrue) for each
Trading Day after such Share Delivery Date until the earlier of the date such
certificates are delivered without restrictive legend or Holder rescinds such
conversion. Nothing herein shall limit a Holder’s right to pursue actual damages
for the Company’s failure to deliver the required amount of Conversion Shares
without restrictive legend and such Holder shall have the right to pursue all
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief without
the need by any Holder to post any bond which the Company hereby waives such
requirement. The exercise of any such rights shall not prohibit a Holder from
seeking to enforce damages pursuant to any other Section hereof or under
applicable law. “Person” means an individual, a corporation, a
partnership, an association, a joint-stock company, a Trust, any unincorporated
organization, or government or political sub-division thereof. 

2.5                  Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Conversion. In addition
to any other rights available to the Holder, if the Company fails for any reason
or no reason to deliver to a Holder the applicable certificate or certificates
by the Share Delivery Date and if after such Share Delivery Date such Holder is
required by its brokerage firm to purchase (in an open market transaction or
otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common
Stock to deliver in satisfaction of a sale by such Holder (or a deemed sale) of
the Conversion Shares which such Holder was entitled to receive upon the
conversion relating to such Share Delivery Date (a “Buy-In”), then the
Company shall (A) pay in cash to such Holder (in addition to any other remedies
available to or elected by such Holder) the amount, if any, by which (x) such
Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder was entitle to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of such Holder, either reissue (if
surrendered) the Note (in which case, such conversion shall be deemed rescinded)
or deliver to such Holder the number of shares of Common Stock that would have
been issued if the Company delivered the required amount of Conversion Shares by
the Share Delivery Date. For example, if a Holder purchases shares of Common
Stock having total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of the Note with respect to which the actual sale price
of the Conversion Shares (including any brokerage commissions) giving rise to
such purchase obligation was a total of $10,000 under clause (A) above, the
Company shall be required to pay such Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to such Holder in
respect of the Buy-In and, upon request of the Company, evidence of the amount
of such loss. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely delivery certificates representing
shares of Common Stock upon conversion of the Note as required pursuant to the
terms hereof. 

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3.                  Default; Events of Default; Remedies. 

3.1                  Default.
Notwithstanding that this Note is a demand note and all amounts due
hereunder become due and payable pursuant to and in accordance with the first
paragraph of this Note, the Company shall be in default under this Note upon the
happening of any condition or event set forth below (each, an “Event of
Default”): 

(a)                  the Company’s failure (i) to pay when due any Principal on
the due date hereunder, or (ii) to pay any Interest or other payment due on
and/or under this Note within two (2) days following the due date hereunder;


(b)                  a breach of any provision and/or default or event of
default (subject to any grace or cure period provided in the applicable
agreement, document or instrument) shall occur under any of the Transaction
Documents and/or any other document related to the Other Notes; 

(c)                  the Company shall fail for any reason to obtain the consent
of the Holder pursuant to Section 4 to take any of the actions enumerated in
Section 4; 

(d)                  the Common Stock shall not be eligible for listing or
quotation for trading on a Trading Market and shall not be eligible to resume
listing or quotation for trading thereon within five (5) consecutive Trading
Days from the first date of lack of eligibility; 

(e)                  the electronic transfer by the Company of shares of Common
Stock through the Depository Trust Company or another established clearing
corporation is no longer available or is subject to a “chill” (i.e., the
Depository Trust Company announces that it will not accept the deposit of shares
of Common Stock into its participants’ street name accounts); 

(f)                  failure to reserve and keep available out of its authorized
and unissued Common Stock the number of shares of Common Stock as described in
Section 6 and/or otherwise comply with any other provision of Section 6; 

(g)                  the Company shall (i) apply for or consent to the
appointment of a receiver, trustee, liquidator or custodian of itself or of all
or a substantial part of its property, (ii) be unable, or admit in writing its
inability, to pay its debts as they mature, (iii) make a general assignment for
the benefit of its or any of its creditors, (iv) be dissolved or liquidated, (v)
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
consent to any such relief or to the appointment of or taking possession of its
property by any official in an involuntary case or other proceeding commenced
against it, or (vi) take any action for the purpose of effecting any of the
foregoing; 

(h)                  proceedings for the appointment of a receiver, trustee,
liquidator or custodian of the Company or of all or a substantial part of the
property thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to the Company or the
debts thereof under any bankruptcy, insolvency or other similar law now or
hereafter in effect shall be commenced and an order for relief entered or such
proceeding shall not be dismissed or discharged within 60 days of commencement;


(i)                  any default in any of the other Transaction Documents
and/or other Indebtedness of the Company and/or any of its Subsidiaries (as
defined below) including, but not limited to any Other Notes (as defined below)
and/or any documents related thereto; or 

(j)                  a breach of any other provision of this Agreement 

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4.                  Limitations on Company Actions. 

4.1                  Notwithstanding anything to
the contrary provided herein or elsewhere, as long as this Note is issued and
outstanding, the Company shall not, and shall not permit any current or future,
direct or indirect, wholly-owned or partially owned subsidiary (a
“Subsidiary,” and collectively, the “Subsidiaries”) to, without
the express written consent of Holders, directly and/or indirectly, owning no
less than 50.1% of the aggregate Principal of all of the Notes then outstanding:


(a)                  amend, alter, change, waive or repeal any provision of the
Articles of Incorporation or By-Laws, each as amended (the “Articles of
Incorporation” and “By-Laws,” respectively) (and/or those of any of
its Subsidiaries), in any manner that could, directly and/or indirectly,
adversely affect the rights of the Holders; 

(b)                  alter, waive, repeal, amend, and/or change any provision of
this Note; 

(c)                  incur any Indebtedness (other than that outstanding and in
such principal amount outstanding as of June 5, 2012 and that represented by the
Notes and the Other Notes, Transaction Documents and the transaction documents
for the Other Notes) which if any such amount is permitted to be paid down, in
whole or in part, pursuant to this Note and is paid down, in whole or in part,
cannot be borrowed again except (A) if such Indebtedness constitutes Permitted
Debt (as defined below), and (B) any such reborrowed Permitted Debt is counted
on a dollar for dollar basis against the Permitted Debt Cap (as defined in
below); provided, however, that subject to the limitations
provided in this subparagraph, the Company and/or its Subsidiaries may borrow
together in the aggregate up to $1,000,000 principal amount of Permitted Debt
(the “Permitted Debt Cap”). For the purposes hereof, the term
“Permitted Debt” shall mean (A) non-convertible, non-equity linked bank
debt from a federal or state-chartered bank on commercially reasonable terms,
which borrowed funds shall be used by the Company and/or its Subsidiaries in
their respective historical and ordinary course of business; and (B) no equity
of the Company and/or any of its Subsidiaries (including, but not limited to,
warrants, stock options and/or other securities) is issued directly and/or
indirectly in connection with any borrowings of such Permitted Debt. For
purposes hereof, “Indebtedness” of any Person means, without duplication
(A) all indebtedness for borrowed money, (B) all obligations issued, undertaken
or assumed as the deferred purchase price of property or services, including,
without limitation, “capital leases” in accordance with United States generally
accepted accounting principles (other than trade payables entered into in the
ordinary course of business), (C) all reimbursement or payment obligations with
respect to letters of credit, surety bonds and other similar instruments, (D)
all obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G). For purposes of this Note,
“Contingent Obligations” shall mean, as to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend and/or other obligation of another Person if a
purpose or intent of the Person incurring such liability, or the direct and/or
indirect effect thereof, is to provide assurance (whether in writing, orally,
and/or by any other means, which shall include, but not be limited to, any
direct and/or indirect guaranty) to the obligee of such liability that such
liability will be paid or discharged, or that any agreements relating thereto
will be complied with, or that the holders of such liability will be protected
(in whole or in part) against loss with respect thereto; 

6 




(d)                  pay and/or make dividends, distributions and/or any other
payment (whether in cash, securities or property) on any securities of the
Company and/or any Subsidiary other than to the Holders of the Notes and the
Other Notes; 

(e)                  enter into any transaction with any Affiliate (as defined
under the Securities Act of 1933, as amended, the “1933 Act”), which
would be required to be disclosed in any public filing with the Securities and
Exchange Commission (the “SEC”) pursuant to SEC laws, rules and/or
regulations, other than any transaction pursuant to which an Affiliate of the
Company and/or Subsidiary is employed pursuant to a written agreement by the
Company and/or any Subsidiary which is negotiated on an arms-length basis, is
approved by the independent directors of the Board of Directors and does not
exceed industry standards, based upon the Company’s industry, the revenues and
income of the Company and the work that such Affiliate will perform pursuant to
such arrangement; 

(f)                  redeem, repurchase and/or otherwise enter into or
effectuate a similar transaction for any securities of the Company and/or any
Subsidiary other than the Note and the Other Notes; 

(g)                  other than the Notes and the Other Notes, repay any
Indebtedness and/or other obligation other than (1) any bank debt outstanding as
of June 5, 2012, but only in accordance with and to the extent of the terms and
conditions of such bank debt as of June 5, 2012; provided,
however, that notwithstanding anything to the contrary provided herein or
elsewhere, no bank debt and/or any other Indebtedness may be pre-paid, (2) any
accounts payable incurred in the normal course of the Company’s historical and
ordinary business, (3) $45,000 aggregate principal amount loan advanced on March
26, 2012 plus accrued, but unpaid simple interest of 8% per annum to a
shareholder of the Company (the “Lender”), provided that simultaneously
with and as a condition to the repayment (including, but not limited to,
accrued, but unpaid interest) to the Lender of such loan, the Lender provides to
the Company (A) written evidence signed by the Lender that no other amounts are
owed by the Company to the Lender pursuant to such loan, and (B) a full written
release signed by the Lender of any and all claims by the Lender against the
Company and/or its Subsidiaries in respect of such loan (“Release
Documents”), (4) up to $60,000 of outstanding principal on loans due to
shareholders and related parties as disclosed on the Company’s balance sheet
dated March 31, 2012 filed with the SEC on or about May 15, 2012,
provided that in each case, Release Documents are obtained, and (5) any
Permitted Debt in accordance with the terms and conditions in this Note; 

7 




(h)                  Other than the Notes and/or the Other Notes, effect or
enter into an agreement to effect any sale and/or issuance of Common Stock or
Common Stock Equivalents (as defined below) directly and/or indirectly involving
a Variable Rate Transaction. For purposes of this Note, the term “Variable
Rate Transaction” means a transaction in which the Company and/or its
Subsidiaries (a) issues or sells any debt or equity securities that are
convertible into, exchangeable or exercisable for, or include the right to
receive, additional shares of Common Stock either (1) at a conversion price,
exercise price or exchange rate or other price that is based upon, and/or varies
with, the trading prices of or quotations for the shares of Common Stock at any
time after the initial issuance of such debt or equity securities or (2) with a
conversion, exercise or exchange price that is subject to being reset at some
future date after the initial issuance of such debt or equity security or upon
the occurrence of specified or contingent events directly or indirectly related
to the business of the Company or the market for the Common Stock; (b) enters
into any agreement, including, but not limited to, an equity line of credit,
whereby the Company may sell securities at a future determined price, or (c)
enters into any type of equity line of credit or similar agreement and/or
transaction. For purposes of this Note, the term “Common Stock
Equivalents” means any securities of the Company and/or its Subsidiaries
which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, rights, options,
warrants or other instrument that is at any time convertible into or exercisable
or exchangeable for, or otherwise entitles the holder thereof to receive, Common
Stock; 

(i)                  enter into any agreement or understanding (whether in
writing, orally or otherwise) to do any of the above; or 

(j)                  directly and/or indirectly create and/or otherwise permit
to exist any Liens on any assets of the Company and/or any of its Subsidiaries
except (i) any Lien for taxes not yet due or delinquent or being contested in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, (ii) any statutory Lien arising in the
ordinary course of business by operation of law with respect to a liability that
is not yet due or delinquent, (iii) any Lien created by operation of law, such
as materialmen’s liens, mechanics’ liens and other similar liens, arising in the
ordinary course of business with respect to a liability that is not yet due or
delinquent or that are being contested in good faith by appropriate proceedings,
or (iv) any Liens securing any obligations of the Company and/or any Subsidiary
under the Notes and Other Notes; (the terms “Lien” or
“lien” shall mean a lien, mortgage, charge, pledge, security
interest, encumbrance, right of first refusal, preemptive right or other
restrictions, clouds on title and/or encumbrances). 

4.2                  Notwithstanding anything to
the contrary provided herein or elsewhere, without the express written consent
of holders owning 50.1% of the aggregate principal amount of all notes and Other
Notes then outstanding (“Required Amount”), the Company shall not, and
shall not permit any Subsidiaries to: 

(a)                  effect any merger, acquisition, sale, consolidation,
reorganization and/or similar transaction or a Change of Control (as defined
below), (each, an “Event”) except any Event which upon the date of the
occurrence or closing of any Event, as the case may be, (i) the Holder receives
in exchange for this Note, cash in an amount not less than two (2) times the
then Principal amount of the Note immediately prior to the occurrence or closing
of such Event, plus all accrued, but unpaid interest and other payments owed to
the Holder by the Company and/or its Subsidiaries, or (ii) if an Event is
structured whereby the Holder receives securities of a non-affiliated,
third-party entity, the common stock of such entity is listed on a National
Securities Exchange (as defined in the 1933 Act) and such common stock for the
twenty (20) consecutive Trading Days with the last Trading Day being the Trading
Day prior to the occurrence or closing of such Event has a daily market
capitalization of no less than $100 million. For purposes of this Note, the term
“Change of Control” means the occurrence after the date hereof of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Securities
Exchange Act of 1934, as amended (the “1934 Act”) of effective control
(whether through legal or beneficial ownership of capital stock of the Company,
by contract or otherwise) of in excess of 50% of the voting securities of the
Company, (ii) the Company merges into or consolidates with any other Person, or
any Person merges into or consolidates with the Company and, after giving effect
to such transaction, the stockholders of the Company immediately prior to such
transaction own less than 50% of the aggregate voting power of the Company or
the successor entity of such transaction, (iii) the Company sells or transfers
all or substantially all of its assets to another Person and the stockholders of
the Company immediately prior to such transaction own less than 50% of the
aggregate voting power of the acquiring entity immediately after the
transaction, (iv) a replacement at one time or within a six (6) month period of
more than one-half of the members of the Board of Directors which is not
approved by a majority of those individuals who were members of the Board of
Directors on June 5, 2012 (or by those individuals who are serving as members of
the Board of Directors on any date whose nomination to the Board of Directors
was approved by a majority of the members of the Board of Directors who were
members on June 5, 2012), or (v) the execution by the Company and/or any of its
shareholders of an agreement to which the Company is a party or by which either
is bound, providing for any of the events set forth in clauses (i) through (v)
above. 

8 




(b)                  decrease or increase the authorized size of the
Company’s (and/or any of its Subsidiaries’), Board of Directors, other than as
expressly provided herein; or 

(c)                  directly and/or indirectly, adopt, amend and/or supplement
any new stock option plan and/or similar plan (the “SOP Plans”), except
where the maximum number of shares of Common Stock that may be acquired directly
and/or indirectly upon exercise of stock options issued under the SOP Plans,
when aggregated with the maximum number of shares of Common Stock that may be
acquired directly and/or indirectly under all other stock option plans and/or
stock options outstanding as of the date hereof (including, but not limited to,
all stock options issued prior to the date hereof under any SOP Plans and/or
otherwise, regardless of whether any such SOP Plans and/or other stock options
have terminated and/or expired with or without being exercised) does not and
will not at any time prior to and including March 3, 2017, exceed in the
aggregate 32,500,000 shares of Common Stock (which 32,500,000 shall be
proportionately adjusted to take into account each stock split and/or reverse
stock split occurring following March 31, 2014). 

5.                  Anti-Dilution
Provisions. The Conversion Price in effect at any time and the number and
kind of securities issuable upon conversion of the Note shall be subject to
adjustment from time to time upon the happening of the events as follows: 

5.1                  Adjustment for Dividends in Other Stock and Property
Reclassifications. In case at any time, or from time to time, the holders of
the Common Stock (or any shares of stock or other securities at the time
receivable upon any conversion of the Note) shall have received, or, on or after
the record date fixed for the determination of eligible stockholders, shall have
become entitled to receive, without payment therefor: 

(a)                  other or additional stock or other securities or property
(other than cash) by way of dividend; 

9 




(b)                  any cash or other property
paid or payable out of any source other than retained earnings (determined in
accordance with generally accepted accounting principles); or 

(c)                  other or additional stock or other securities or property
(including cash) by way of stock-split, spin-off, reclassification, combination
of shares or similar corporate rearrangement (other than (x) additional shares
of Common Stock or any other stock or securities into which such Common Stock
shall have been changed, (y) any other stock or securities convertible into or
exchangeable for such Common Stock or such other stock or securities or (z) any
stock purchase rights, issued as a stock dividend or stock-split, adjustments in
respect of which shall be covered by the terms of Section 5.3 or Section
5.4, then and in each such case, the Holder, upon any conversion of the Note,
shall be entitled to receive the amount of stock and other securities and
property (including cash in the cases referred to in clauses (a) and (b) above)
which such Holder would have been entitled to receive had such Holder been the
holder of record, on the date of any such issuances described in clauses (a),
(b) or this clause (c), of the number of shares of Common Stock into which the
Note is being converted, giving effect to all adjustments called for during such
period by Section 5.1 and Section 5.2. 

5.2                  Adjustment for
Reorganization, Consolidation and Merger. In case of any reorganization of
the Company (or any other corporation the stock or other securities of which are
at the time receivable on the conversion of the Note) after the Issuance Date,
or in case, after such date, the Company (or any such other corporation) shall
consolidate with or merge into another corporation or entity or convey all or
substantially all its assets to another corporation or entity (any such
reorganization or other event hereafter being referred to as a
“Reorganization”), then and in each such case the Note, upon conversion,
as and at any time after the consummation of such Reorganization, shall be
converted into, in lieu of the stock or other securities and property into which
the Note would have been convertible prior to such Reorganization, such stock or
other securities or property to which the Note would have converted if they had
been converted immediately prior to any such Reorganization, subject to further
adjustment as provided in Sections 5.1, Section 5.3, and Section 5.4, in each
such case. 

5.3                  Adjustment for Certain
Dividends and Distributions. If the Company at any time, or from time to
time, makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event, the Conversion
Price then in effect shall be decreased as of the time of such issuance or, in
the event such record date is fixed, as of the close of business on such record
date, by multiplying the Conversion Price then in effect by a fraction (A) the
numerator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (B) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date as the
case may be, plus the number of shares of Common Stock issuable in payment of
such dividend or distribution; provided, however, that if such
record date is fixed and such dividend is not fully paid or if such distribution
is not fully made on the date fixed therefor, the Conversion Price shall be
recomputed accordingly as of the close of business on such record date, and
thereafter the Conversion Price shall be adjusted pursuant to this Section 5.3
as of the time of actual payment of such dividends or distributions. 

5.4                  Stock Split and Reverse
Stock Split. If the Company at any time, or from time to time, effects a
stock split or subdivision of the outstanding Common Stock, the Conversion Price
then in effect immediately before that stock split or subdivision shall be
proportionately reduced. If the Company at any time, or from time to time,
effects a reverse stock split or combines the outstanding shares of Common Stock
into a smaller number of shares, the Conversion Price then in effect immediately
before that reverse stock split or combination shall be proportionately
increased. Each adjustment under this Section 5.4 shall become effective at the
close of business on the date the stock split, subdivision, reverse stock split
or combination becomes effective. 

10 




5.5                  Fundamental Transaction. If, at any time while any
the Note is outstanding, (A) the Company effects any merger, means an individual
or corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind, consolidation or
similar transaction of the Company with or into another Person, (B) the Company
effects any sale of all or substantially all of its assets in one or a series of
transactions, (C) any tender offer or exchange offer (whether by the Company or
another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (D) the Company effects any reclassification of the Common Stock or
any share exchange pursuant to which the Common Stock is effectively converted
into or exchanged for other securities, cash or property (each a “Fundamental
Transaction”), then, upon any subsequent conversion of the Note, the Holder
shall have the right to receive, for each share of Common Stock that would have
been issuable upon such conversion immediately prior to the occurrence of such
Fundamental Transaction, the number of shares of Common Stock of the successor
or acquiring Person or of the Company, if it is the surviving corporation, and
any additional consideration (the “Alternate Consideration”) receivable
as a result of such merger, consolidation, or disposition of assets or other
similar transaction by a holder of the number of shares of Common Stock for
which the Note is convertible immediately prior to such event. For purposes of
any such conversion, the determination of the Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion
Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of the Note following such Fundamental Transaction.
The terms of any agreement pursuant to which a Fundamental Transaction is
effected shall include terms requiring any such successor or surviving Person to
comply with the provisions of this Section 5.5 and insuring that the Note (or
any such replacement security) will be similarly adjusted upon any subsequent
transaction analogous to a Fundamental Transaction. 

5.6                  Other Events.
Notwithstanding anything to the contrary provided in this Note or elsewhere, if
the Company, at any time and from time to time commencing on the Issuance Date
and expiring at the end of the day February 24, 2019, Easter Standard Time,
sells and/or issues shares of Common Stock and/or issues and/or sells Common
Stock Equivalents, as defined below (a “New Common Offering”) having a
sale and/or exercise, conversion or exchange price (the “Subsequent Lower
Issuance Price”) at a price less than the Additional Share Trigger Price (as
defined below) (a “Subsequent Lower Issuance”), then and in each such
case the (i) Conversion Price shall be automatically adjusted to the Subsequent
Lower Issue Price, and (ii) Company shall issue (without cost to the Holder),
such number of additional shares of Common Stock (the “Additional Common
Stock”) calculated as follows: 

A = [((B/C) – 1) x D] – A1 

A is the number of additional shares of
Common Stock to be issued to the Holder. 

B is the Additional Share Trigger Price


C is the greater of (I) the Subsequent
Lower Issuance Price and (II) the Conversion Price. 

11 




D is the number of shares of Common
Stock issuable to the Holder on conversion of this Note as at the date of the
Subsequent Lower Issuance. 

A1 is the aggregate number of shares of
Additional Common Stock previously issued to the Holder pursuant to one of more
prior Subsequent Lower Issuances. 

For example; assuming an Additional Share Trigger Price of
$0.10 and a Subsequent Lower Issuance Price of $0.08, and assuming the number of
shares of Common Stock issuable to a Holder on conversion of such Holder’s Note
at the Subsequent Lower Issuance is 100, and further assuming no prior
Subsequent Lower Issuances, the number of additional shares of Common Stock to
be issued to the Holder would be 25.

The reduction in the Conversion Price and the Common Stock
issuances set forth in this Section 5.6 shall occur each time the Company issues
and/or sells shares of Common Stock and/or Common Stock Equivalents with a price
and/or an exercise, exchange and/or conversion price, as the case may be, less
than the Additional Share Trigger Price and/or the Conversion Price. The
Additional Share Trigger Price shall also be adjusted for stock splits, reverse
stock splits and related items as provided in this Note affecting all the issued
and outstanding shares of Common Stock in the same manner. Notwithstanding
anything to the contrary provided herein, the Additional Share Trigger Price
shall not increase as a result of further issuances of securities by the
Company. For purposes of this Section, “Additional Share Trigger Price”
means $0.09 per share of Common Stock.

6.                  Reservation of Authorized Shares.

6.1                  So long as any Notes and/or
any other securities of the Company are owned by the Holder (and/or any
transferee thereof) beneficially and/or of record, the Company covenants and
agrees that no later than the date 60 days from the Original Issuance Date (the
“Required Date”) it will at all times reserve and keep available out of
its authorized and unissued shares of Common Stock a number of shares of Common
Stock at least equal to (the “Required Reserve Amount”) (i) 300%,
multiplied by (ii) the Required Minimum (as defined below) for the sole purpose
of issuance upon conversion of this Note and all other Notes issued and
outstanding on the date of any determination, free from preemptive rights or any
other actual and/or contingent purchase rights of any other persons and/or
entity. The Company covenants that all shares of Common Stock that shall be so
issuable shall, upon issue, be duly authorized, validly issued, fully paid and
nonassessable, and, at such times as a registration statement covering such
shares is then effective under the Securities Act, will be registered for public
resale in accordance with such registration statement. For purposes of this
Note, the “Required Minimum” shall mean the product of (A) the quotient
obtained by dividing (I) the sum of (i) all outstanding Principal
represented by this Note and all other Notes issued and outstanding on the date
of any determination, (ii) all Interest hereon and thereon (whether accrued or
not), and (iii) all other amounts owed under this Note and the other Transaction
Documents by (II) the Conversion Price, and the resulting number multiplied by
(B) 300%. The Company shall be required to calculate the Required Minimum on the
first Trading Day of every other week that any amounts are owed by the Company
under this Note, any other Notes and/or the other Transaction Documents and
provide such calculation to each Holder of Notes and the Transfer Agent in
writing on such date. For purposes of calculating the Required Minimum, the
Company shall assume that all Principal of this Note and any other Notes
outstanding will remain outstanding for eighteen (18) months and Interest is
paid in Notes and accrues at the Interest Rate and is all paid on the date 18
months from the Issuance Date. The covenant by the Company set forth above in
this Section 6.1 as it relates to the first time the Company is required to
satisfy the Required Reserve Amount (the “6.1 Covenant), shall be
calculated and satisfied for and on the earliest date possible but in no event
later than the Required Date. In addition, the Company’s authorized but unissued
and unreserved shares of Common Stock shall have been increased (the “Initial
Increase”) to 3 billion shares of Common Stock (all in accordance with all
applicable rules, laws and regulations including, but not limited to those of
FINRA, Nevada law and the SEC), as soon as possible by the Company using its
best-efforts, but in no event shall such Initial Increase occur later than the
Required Date. Failure by the Company to satisfy the 6.1 Covenant and the
Initial Increase, as soon as possible but in no event later than the Required
Date, to file the Information Statement (as defined below) with the SEC for the
Initial Increase within 5 Business Days from the date hereof and/or the Company
not using its best efforts to satisfy such conditions will result in the payment
by the Company to the Holder of the 2% Amount (as defined below) per day
commencing on the first day of any breach of any such conditions, which shall be
in addition to any and all other rights and remedies that the Holder may take
against the Company in law and/or equity under this Note, the Transaction
Documents, applicable law and/or otherwise, all of which shall be
cumulative.

12 




6.2                  Initial Reservation; Subsequent Authorized Deficiency;
and Subsequent Reserve Amount Deficiency. On the Issuance Date, the
Company shall have 300,000,000 shares of Common Stock authorized, approximately
127,000,000, shares of Common Stock issued and outstanding and reserved out of
its authorized but unissued and unreserved shares of Common Stock 162,000,000
shares of Common Stock solely for issuance upon conversion of the Other Notes.
At any time and from time to time following the Required Date, and
notwithstanding anything to the contrary provided herein or elsewhere, in the
event that the Company, the Holder, any other holder of Notes and/or the
Collateral Agent shall determine that the Company (i) has not satisfied the
Required Reserve Amount ( a "Subsequent Reserve Amount Deficiency"), and/
or (ii) does have sufficient shares of Common Stock authorized and unissued and
unreserved to satisfy the Required Reserve Amount ( a "Subsequent Authorized
Deficiency"), the Company shall immediately notify the holders of the Notes
and the Collateral Agent in writing of 1 or both deficiencies, as the case may
be (and /or the Holder, any other holders of the Notes and/or the Collateral
Agent shall determine and inform the Company of one or both deficiencies, as the
case may be), then the Company shall file within 5 Business Days an Information
Statement on Form 14A or Form 14B, as applicable (an "Information
Statement"), with the SEC and take all such other action to cure the
Subsequent Reserve Deficiency and/or the Subsequent Authorized Deficiency, as
the case may be, no later than 45 days from the date the Company becomes or
should have become aware of one and/or both deficiencies, as the case may be
(the "Last Day"). Failure by the Company to file an Information Statement
as part of curing 1 or both such deficiencies as required pursuant to this
Section 6.2 and in the time frame so required by this Section 6.2, use its best
efforts to cure 1 or both of such deficiencies, as the case may be, by Last Day,
either or both deficiencies , as the case may be, are not cured by the Last Day
and/or if either or both deficiencies appear to be cured by the Last Day, but
the cure of either or both deficiencies, as the case may be, did not comply with
all applicable laws, rules and regulations, including but not limited to the
laws of the State of Nevada and the Securities and Exchange Commission (each a
“Breach”), then the Company shall pay to the Holder and each other holder
of Notes (or the Collateral Agent for the benefit of itself and the Holder and
the other holders of the Notes, for each day that the Company has not cured each
Breach including the first date of any Breach, in cash by wire transfer to the
Holder and each other holder of Notes (or the Collateral Agent for the benefit
of itself, the Holder and the other holders of the Notes), an amount equal to 2%
of the Holder’s and each other holder of Notes aggregate principal amount of
their respective Notes and all accrued but unpaid Interest and other amounts due
to the Holder and each other holder under this Note and each other Note as well
as each other Transaction Document through and including the datel all Breaches
are cured and all amounts owed to the Holder and each other holder of Notes are
received in full in cash by the Holder and each other holder (or the Collateral
Agent by wire transfer pursuant to wiring instructions provided to the Company
from the Holder and each other holder or the Collateral Agent (the “2%
Amount”). Notwithstanding anything to the contrary provided herein, holders
owning at least 50.1% of the aggregate principal amount of Notes then
outstanding (or the Collateral Agent may declare an Event of Default under the
Notes and obtain any other relief available under applicable law, whether in
equity or otherwise, and/or in any of the Transaction Documents. In no event
shall any action or non-action by the Holder, any other holder of Notes and/or
the Collateral Agent under Section 6.1 and/or this Section 6.2 constitute a
waiver of any right and/or remedy any such persons may have under law, and/or
the Transaction Documents. Once the Initial Increase is in effect and any
Subsequent Share Deficiency has been cured , as the case may be, the Company
shall immediately calculate the Required Reserve Amount for the Holder and each
other holder and immediately provide a draft of an irrevocable instruction to
its transfer agent to the Holder and each other holder of Notes, and the
Collateral Agent which once approved by the Holder and each other holder and/ or
the Collateral Agent shall immediately be signed by the Company and delivered to
the Company’s transfer agent to meet the Required Reserve Amount. 

13 




7.                  Security; Subsidiary Guaranty. This Note, all other
Notes and the Other Notes shall rank pari passu with each other in all respects
and all of the Company’s and its Subsidiaries’ obligations to the Holder, the
other holders of the Notes and the holders of the Other Notes and in the other
Transaction Documents are secured on a pari passu basis by all of the assets of
the Company and its Subsidiaries pursuant to the IP Security Agreement, the
Security and Pledge Agreement and all obligations of the Company to the Holder
hereunder including, but not limited to, the payment of Principal, Interest and
all other amounts due hereunder and/or pursuant to the other Transaction
Documents are guaranteed by the Company’s Subsidiaries pursuant to the Guaranty
Agreement. Pursuant to the Security and Pledge Agreement, all shares of issued
and outstanding capital stock of the Company’s represented by the Certificate
have been pledged by the Company to the Collateral Agent for the benefit of the
Collateral Agent and such other holders of Notes and Other Notes.
Notwithstanding anything to the contrary provided herein or elsewhere, prior to
any payments of principal to the holders of the Other Notes from (i) the sale of
any assets of the Company and/or any of its Subsidiaries, and/or (ii) cash flow
of the Company and/or its Subsidiaries (“Payment Events”), the holders of
the Notes shall be entitled to receive the full payment of all amounts owed to
them under their respective Notes, provided, however,
notwithstanding anything to the contrary provided herein or elsewhere (x) at the
election of each holder of Notes, any such payments due to any such holders of
Notes of principal based upon Payment Events, shall be payable in whole and/or
part to reduce on a dollar for dollar basis any amounts owed by the Company
and/or any Subsidiary to any Other Notes owned, if any, by such holder of Notes,
all in the sole discretion of the particular holder of a Note in the following
order: first to all amounts owed other than Principal and Interest, second to
all Interest owed and third to all outstanding Principal. 

8.                  Limitation on Number of Shares Issuable to Holder


8.1                  Other than as provided
elsewhere in this Section 8, at no time may the Holder convert any portion of
this Note if the number of shares of Common Stock to be issued pursuant to such
conversion would exceed, when aggregated with all other shares of Common Stock
owned by such Holder at such time, the number of shares of Common Stock which
would result in such holder beneficially owning (as determined in accordance
with Section 13(d) of the 1934 Act), more than 4.99% of all of the Common Stock
outstanding at such time; provided, however, that upon the Holder
providing the Company with sixty-one (61) days notice that such holder would
like to waive this Section 8.1 with regard to any or all shares of Common Stock
issuable upon conversion of the Note, this Section 8.1 shall be of no force or
effect with regard to the principal amount referenced in the Waiver Notice. 

8.2                  Other than as provided
elsewhere in this Section 8, at no time may the Holder convert any portion of
the Note if the number of shares of Common Stock to be issued pursuant to such
conversion would exceed, when aggregated with all other shares of Common Stock
owned by such Holder at such time, the number of shares of Common Stock which
would result in such holder beneficially owning (as determined in accordance
with Section 13(d) of the 1934 Act) in excess of 9.99% of all of the Common
Stock outstanding at such time; provided, however, that upon the
Holder providing the Company with sixty-one (61) days notice that such Holder
would like to waive this Section 8.2 with regard to any or all shares of Common
Stock issuable upon conversion of the Note, this Section 8.2 shall be of no
force or effect with regard to the principal amount referenced in the Waiver
Notice.

14 




9.                  Lost or Stolen Note. Upon receipt by the
Company of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of the Note, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of the Note, the Company shall execute and deliver a new promissory note of like
tenor and date. 

10.                  Information Rights.
Unless otherwise publicly available in electronic format on the website of the
Company or filed with the SEC, the Company shall furnish to the Holder within
one hundred and five (105) days after the end of each fiscal year, audited
financial statements of the Company and its consolidated subsidiaries and,
within sixty (60) days after the end of each of the quarters of each fiscal
year, unaudited financial statements of the Company. 

11.                  Failure to Pay.
Notwithstanding anything to the contrary provided herein or elsewhere and in
addition to all other remedies available to the Holder under this Note, any
other Transaction Documents and/or elsewhere, if any payment hereunder or
elsewhere is due to the Holder, and such payment is not made (even if a payment
is not permitted to be paid because insufficient capital is available under
applicable law to make such payment), Interest on such payment (in addition to
any other Interest and/or penalties that become due), shall accrue at the rate
of the lesser of (i) 22% per annum, and (ii) the maximum amount permitted by
applicable law, and all Interest shall accrue and compound daily until all
payments are made, including Interest and penalties. Nothing in this Section 11
shall be deemed to constitute a waiver and/or election of remedies by a Holder,
all of which other remedies a Holder reserves its rights to pursue, whether in
law or equity. 

12.                  Certain Payments.
Notwithstanding anything to the contrary provided herein or elsewhere, in the
event (i) any of the Transaction Documents are not in form and substance
reasonably satisfactory to the Collateral Agent, and properly executed and
delivered to the Holder no later than November 3, 2015, except for the documents
set forth in Section 12(ii), and/or (ii) the Collateral Agent has not received
by November 8, 2015 (a) the original Certificate, (b) the executed but undated
SPA, which SPA under applicable Canadian law will transfer all right, interest
and the title (free and clear of all liens, encumbrances and/or preemptive
rights) of the 120 shares represented by the Certificate to the Collateral Agent
as required by and pursuant to the Security and Pledge Agreement, (c) the
executed Security and Pledge Agreement, the IP Security Agreement and the
Guaranty in form and substance reasonably satisfactory to the Collateral Agent
and/or (d) the security interests created by the Security and Pledge Agreement,
and the IP Security Agreement have not been perfected in accordance with all
applicable laws, rules and regulations to provide the Collateral Agent, with a
perfected and a first priority senior lien on and in all of the Collateral (as
defined in the Security and Pledge Agreement), and all other assets of the
Company and its Subsidiaries subject only to any lien created pursuant to the
Full Factoring Agreement dated March 24, 2015 by and between Viscount
Communication & Control Systems, Inc. (the Company’s wholly-owned
subsidiary) and Liquid Capital Exchange Corp. (the “Factoring
Agreement”), provided such Factoring Agreement is not and has not been
amended, supplemented and/or otherwise changed since September 15, 2015, all to
the satisfaction of the Collateral Agent based upon evidence commercially
reasonably satisfactory to the Collateral Agent, then for each calendar day
during which one or more of such events have occurred, the Company shall pay to
the Holder and each other holder of Notes, $2,500 per day in immediately
available funds upon demand by the Holder, any other holder of Notes (and/or the
Collateral Agent for itself and the other Note holders) by wire transfer to the
bank account of the Holder and each other holder of Notes (or the Collateral
Agent for itself and each other Note holder), pursuant to wiring instructions
provided by the Holder and the other holders of Notes to the Company in writing
or to the Collateral Agent’s bank account (for the benefit of itself and the
other holders of Notes). If any such $2,500 payments are not received in full,
in cash when due, Interest on such payments shall accrue at the lower of (i) 22%
per annum, and (ii) the highest interest rate permitted by applicable law
compounding daily through and including the date all amounts owed to the Holder
and the other holders of Notes (or the Collateral Agent for the benefit of
itself and all holders of Notes), are received in full in cash by such persons.
The failure of the Holder, any other holder of Notes or the Collateral Agent to
take action and/or to not take any action, shall not directly and/or indirectly
constitute a waiver and/or an election of remedies by any such person(s), all of
which other remedies such persons reserve their respective rights to pursue
whether in law or equity.

15 




13.                  Miscellaneous. 

13.1                  Waivers and
Amendments. This Note and the other Notes may only be amended, waived,
discharged or terminated (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely) with the written consent of holders owning no less than 50.1% of
the aggregate outstanding principal amount of all Notes at such time. This Note
may not be changed, waived, discharged or terminated orally but only by a signed
statement in writing. 

13.2                  Severability.
In the event that any provision of this Note becomes or is declared by a
court of competent jurisdiction to be illegal, unenforceable or void, this Note
shall continue in full force and effect without said provision; provided that no
such severability shall be effective if it materially changes the economic
benefit of this Note to any party. 

13.3                  Assignment. Subject
to compliance with applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are reasonably requested by the Company), this Note and all
rights therein, may be transferred or assigned in whole or in part by the
Holder. The Company agrees to use its best-efforts and take all reasonably
requested action to facilitate and effectuate the transfer and/or assignment of
this Note (in whole or in part), by the Holder and in the time frame so
requested by the Holder. 

13.4                  Titles and Subtitles.
The titles of the paragraphs and subparagraphs of this Note are for convenience
of reference only and are not to be considered in construing this Note. 

13.5                  Construction. The
language used in this Note will be deemed to be the language chosen by the
parties to express their mutual intent and no rules of strict construction will
be applied against any party. 

13.6                  Governing Law. All
questions concerning the construction, validity, enforcement and interpretation
of this Note shall be governed solely and exclusively by and construed and
enforced in accordance with the internal laws of the State of New York, without
regard to the principles of conflict of laws thereof. The Company expressly and
irrevocably agrees that all legal proceedings concerning the interpretation,
enforcement and defense of the transactions contemplated by this Note shall be
commenced exclusively in the state and/or federal courts sitting in the State,
City, and County of New York (the “New York Courts”). The Company
expressly and irrevocably submits to the exclusive jurisdiction of the New York
Courts for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein, and hereby
irrevocably and expressly waives, and agrees not to assert in any suit, action
or proceeding, any claim that it is not personally subject to the jurisdiction
of such New York Courts, or such New York Courts are improper or inconvenient
venue for such proceeding. The Company hereby expressly and irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any other manner permitted by applicable law. In any action brought
by the Company concerning and/or arising directly and/or indirectly out of this
Note, the prevailing party shall be entitled to recover all of its legal fees
and expenses incurred by it with respect to any such legal action. THE
COMPANY EXPRESSLY AND IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE.

16 




13.7                  Rank of Notes. Except as otherwise provided herein,
this Note and, all other Notes and the Other Notes shall rank senior in all
respects to all other Indebtedness or other monetary obligations of the Company
and/or its Subsidiaries, whether such Indebtedness or other obligations are
outstanding as of the date of this Note or incurred after the date of this Note,
such that all such other Indebtedness or other obligations shall be subordinated
in right of payment to this Note.

13.8                  Notices. Any and all
notices or other communications or deliveries to be provided by the Holder
hereunder including, without limitation, any Notice of Conversion, shall be in
writing and delivered personally, by facsimile (to facsimile number
1-604-327-3859) and email (to scott.sieracki@viscount.com), or sent by a
nationally recognized overnight courier service, addressed to the Company, at
the following address 4585 Tillicum Street, Burnaby, British Columbia, Canada
V5J 5K9, Attention: Scott Sieracki, President or such other facsimile number, or
address, or email as the Company may specify for such purposes by notice to the
Holders delivered in accordance with this Section 13.8. Any and all notices or
other communications or deliveries to be provided by the Company hereunder shall
be in writing and delivered personally, by facsimile, email or sent by a
nationally recognized overnight courier service addressed to each Holder at the
facsimile number, email or address of such Holder appearing on the books of the
Company. Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile or email at the
facsimile number or email address (as the case may be), set forth in this
Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next
Trading Day after the date of transmission, if such notice or communication is
delivered via facsimile or email at the facsimile number or email address (as
the case may be), set forth in this Section on a day that is not a Trading Day
or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the
second Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. 

13.9                  Board
Observer/Director. Commencing on the Issuance Date, at any time and from
time to time that any amounts due to the Holder and/or the other Holders of
Notes by the Company under this Note and/or the other Transaction Documents are
outstanding, the holders of 50.1% of the then outstanding aggregate principal
amount of the Notes and the Other Notes shall have the right to appoint an
observer to the Board of Directors of the Company (the “Observer”). The
Company shall (i) provide any such Observer with written notification of all
Board Meetings (whether an in person or telephonic Board meeting); and (ii) all
information given to any Board member, all in the same manner and at the same
time as a Board member gets or is entitled to receive any such notification
and/or information. Effective on the Issuance Date, all Directors of the
Company’s Board of Directors shall resign except for Mr. Ned L. Siegel and Mr.
Alexander Buehler; and the maximum number of Directors of the Company shall be
five (5), of which Messrs. Siegel and Buehler shall constitute 2 Directors and
the other 3 Directors (the “Note Directors”), shall be appointed by the
holders owning 50.1% of the aggregate issued and outstanding principal amount of
the Notes and the Other Notes, which notwithstanding anything to the contrary
provided herein or elsewhere, the Board shall remain at no more than 5 Directors
and the three (3) Note Directors (and/or their successors and/or replacements)
shall remain Directors on the Board until such time as all amounts owed to all
holders of the Notes and the Other Notes including, but not limited to all
principal, interest and/or other amounts under the Transaction Documents and
documents related to the Other Notes are paid to all such holders in full in
cash by wire transfer pursuant to wire transfer instructions provided by each
holder to the Company, at which time the Note Directors at the request of the
CEO of the Company shall resign as directors of the Company and the Board shall
be reconstituted to be the same Board as existed on October 29, 2015;
provided, however, that notwithstanding anything to the contrary
provided herein or elsewhere, in the event that at any time and from time to
time the required holders of the Notes and Other Notes seek to replace one or
more of the three (3) Note Directors during the period that such persons have
the right to appoint the 3 Note Directors as provided in this Note, and such
does not occur by the date 5 Business Days following the date of such written
request by the holders of 50.01% of the then issued and outstanding aggregate
principal amount of the Notes and Other Notes to the Company (the
“5th Business Day”), the Company shall pay to
each holder of Notes and Other Notes $2,500 per day in cash by wire transfer
commencing on the first day following the 5th Business Day through
and including the date such new Note Director(s) become directors of the Company
in compliance with all applicable laws, rules and regulations, subject to the
holders of the Notes and Other Notes not intentionally acting or failing to act
in a manner reasonably necessary to replace the particular Note Director(s). The
Note Directors shall be entitled to receive from the Company the highest
compensation that any other Director of the Company receives and shall be
entitled to all costs and expenses (including, but not limited to, air fare,
other travel costs, meals and lodging), to attend all Board of Directors
meeting. At any time and from time to time, holders owning no less than 50.1% of
the aggregate principal amount of all Notes and Other Notes then outstanding can
replace by written notice one or more of the Note Directors. Whenever any Note
Director is on the Board, the Company shall maintain Directors and Officers
Liability Insurance and each such Note Director shall be named as a covered
party thereunder, which insurance shall be in the form and substance
satisfactory to each Note Director; and following the resignation of each Note
Director the Company shall have the obligation to maintain Director and Officer
Liability Insurance for each Note Director for a period until all potential
liability to each Note Director has expired as a result of the expiration of all
statutes of limitations. Moreover, the Company and each of its Subsidiaries
shall indemnify and hold harmless each Note Director for the same periods to the
maximum extent permitted by law. 

17 




14.                  Simultaneous Closing. Substantially simultaneously
with the sale and issuance of Notes to the Holder and other purchasers of Notes,
the Company shall issue 14% Senior Secured Convertible Demand Promissory A Notes
(the “Other Notes”) to (i) holders of the Series A Convertible Preferred
Stock of the Company (“A Shares”) in an amount equal to 150% of all
amounts owed to each holder of A Shares by the Company including, but not
limited to, the purchase price paid by each holder of A Shares for such A Shares
and all accrued but unpaid dividends thereon in exchange for their A Shares, and
(ii) to each purchaser of Notes in an amount equal to the aggregate principal
amount of such purchaser’s Notes purchased. 

15.                  Series B Preferred Stock. As a condition to
the closing of the issuance and sale of the Notes and the Other Notes, the
Company shall have filed the B Certificate with the Nevada Secretary of State
creating 1,000 B Shares. For each $50,000 aggregate principal amount of Notes
and Other Notes sold and/or issued to any person pursuant to the terms set forth
in the Transaction Documents and the documents for the Other Notes, such person
shall receive one (1) B Share. As long as the B Shares are issued and
outstanding, the B Shares shall be entitled to vote (and/or consent if a written
consent of shareholders is being sought) with respect to any matter upon which
the holders of the Common Stock have the right to vote with the holders of
50.01% of the then aggregate Principal amount of Notes and Other Notes
outstanding being entitled to vote all B Shares then outstanding, with the B
Shares being entitled to eighty (80%) percent of the total votes of Common Stock
at each election and/or written consent of stockholders regardless of how many B
Shares and/or shares of Common Stock are then issued and outstanding (and to
call and/or to constitute a quorum for a shareholders’ meeting of the holders of
the Common Stock). See the B Certificate annexed hereto as part of Exhibit 7.
Notwithstanding anything to the contrary provided herein, any conflict
between the description of the B Shares and/or the B Certificate set forth
herein and/or in any other Transaction Document and the B Certificate shall be
governed by the B Certificate. 

18




IN WITNESS WHEREOF, the
undersigned has executed this Note on and as of the date first above written.


	 	VISCOUNT SYSTEMS,
      INC., 
	 	a Nevada corporation
  
	 	 	  
	 	 	  
	 	 	  
	 	By: 	 
	 	 	Name: Scott Sieracki 
	 	 	Title: Interim Chief Executive Officer
  


19




Annex I 

NOTICE OF CONVERSION 

The undersigned hereby elects to
convert $________________of the principal amount of the Note (defined below)
into shares of Common Stock of Viscount Systems, Inc., a Nevada corporation (the
“Company”) according to the term conditions of the Senior Secured
Convertible Demand Promissory B Note of the Company; Original Issuance Date:
October 30, 2015 (the “Note”). No fee will be charged to the Holder or
Holder’s Custodian for any conversion, except for transfer taxes, if any. 

Box Checked as to applicable
instructions: 

		[  ] 	
      The Company shall electronically transmit the Common
      Stock issuable pursuant to this Notice of Conversion to the account of the
      undersigned or its nominee with DTC through its Deposit Withdrawal Agent
      Commission system (“DWAC Transfer”). 

	 	 	 
	 	  	Name of DTC Prime Broker: 
      _____________________________________________________________
	 	 	 
	 	  	Account Number: 
      ____________________________________________________________________
	 	  	  
	 	 	 
	 	 	 
		[  ] 	
      The undersigned hereby requests that the Company issue a
      certificate or certificates for the number of shares of Common Stock set
      forth below (which numbers are based on the Holder’s calculation attached
      hereto) in the name(s) specified immediately below: 

	 	 	 
	 	 	                 
        ________________________________________



	 	Date of Conversion: 	 	 
	 	 	 	 
	 	Conversion Price: 	 	 
	 	 	 	 
	 	Shares to Be Delivered: 	 	 
	 	 	 	 
	 	Remaining Principal Balance 	 	 
	 	 	 	 
	 	Due After This Conversion: 	 	 
	 	  	 	 
	 	Signature: 	 	 
	 	 	 	 
	 	Print Name: